Defamation Costs Allstate $4M, Even After Court Erases Wrongful Termination Verdict

Allstate Insurance Co. was within its rights to fire Michael A. Tilkey from his $200,000-a-year job as a broker after he pleaded guilty to disorderly conduct, a California appellate court ruled Monday.

On the other hand, the carrier’s decision to report that Tilkey had been terminated because of reasons related to “domestic violence” amounted to defamation, deserving an award of $4,247,287.50 in compensatory and punitive damages, the 4th District Court of Appeal panel found.

It would have gone a lot worse for Allstate if the appellate judges had not found merit in two of the six grounds that the carrier stated in its appeal of a San Diego County jury verdict. The 4th District reversed the jury’s finding that Tilkey had been wrongfully terminated and slashed the jury’s award from $18,641,959.

Tilkey’s 30-year career with Allstate ended after a night out with his girlfriend on Aug. 16, 2014. The couple had some drinks and then went to her house and got into an argument. Tilkey decided to leave and walked outside to an enclosed patio to retrieve a cooler he had brought with him. His girlfriend locked the door.

Tilkey banged on the glass-paned patio door, demanding to be let in so he could collect his belongings. Mann called police.

The officers noted that the interior trim of the framing above the door was broken. They searched Tilkey’s travel bag and found marijuana and a pipe. Police arrested Tilkey on a charge of “criminal damage deface,” possession of drug paraphernalia and “disorderly conduct-disruptive behavior.” A “domestic violence” label was attached to the last misdemeanor charge, according to the appellate panel’s opinion.

Tilkey’s supervisors at Allstate became aware of his trouble after the ex-girlfriend (as identified in Tilkey’s lawsuit) sent emails to his work address, which the company flagged for review. A human resources specialist investigated in December 2014 and learned that Tilkey had been arrested, but had accepted a plea deal that led to dismissal of two of the charges. The specialist reported to her superiors that the third charge would be dismissed after Tilkey completed a “domestic nonviolence diversion program” and that there had been no violation of company policy.

No action was taken initially, but on March 3, 2015, the ex-girfriend wrote an email to Allstate executives alerting the company about the arrest. The human resources specialist revised the report to state that Tilkey had completed the diversion program, resulting in deferred prosecution.

But Human Resources Director Tyrone Burno asked for changes. At his suggestion, the specialist noted in an amended report that Tilkey had been arrested for a “domestic violence” charge. Burno also changed the conclusion of the report to state that Allstate had lost confidence in Tilkey.

Allstate terminated Tilkey on May 27, 2015, stating that “the retention of the domestic violence charges suggests that Tilkey engaged in behavior that was construed as acts of physical harm or violence towards another person.”

The company then sent a Form U5 with the Financial Industry Regulatory Authority, a private corporation known as FINRA that acts as a self-regulatory body for brokers licensed by the U.S. Securities and Exchange Commission. That form stated Tilkey had been fired for “engaging in threatening behavior and/or acts of physical harm or violence to any person, regardless of whether he/she is employed by Allstate.”

Tilkey filed suit alleging that Allstate had wrongfully terminated and defamed him. Technically, the stated grounds were coerced self-publication defamation, which means his employer put him in a position where he had to reveal damaging information about himself to prospective employers.

The appellate panel reversed the jury’s finding that Tilkey had been wrongfully terminated.

The lawsuit argued that it is a violation of state law to use records of an arrest that doesn’t result in a conviction as grounds for termination. The 4th District said, however, said that the California legislature amended state law in 1995 to eliminate diversion programs for domestic violence offenders. Even though Tilkey had been arrested in Arizona, the court said it would go against California’s public policy to bar knowledge of his guilty plea to a domestic violence charge as a reason for termination.

The carrier’s decision to report the reason for Tinkley’s termination to the FINRA was another matter. The court said that FINRA’a authority to discipline brokers is limited to improper business activities, such as fraud or violations of securities rules. The mention of violence was not required under FINRA’s rules, and therefore the report was not “privileged,” meaning Allstate can be held liable for the impact of its statement, the court found.

The appellate court did side with Allstate on a second point: It found that the jury’s award of punitive damages — six times the amount of compensatory damages — was excessive.

“Although there is no bright line regarding the proper ratio of punitive to compensatory damages, the United States Supreme Court has suggested the ratio should generally be no higher than four to one and almost never nine to one,” the panel said.

The jury found that Tilkey is owed $1,702.915 in compensatory damages for defamation. The appellate panel awarded punitive damages of 1.5 times that amount, or $2,554,372.50, leading to a total award of $4,257,287.50. The panel overturned the award of damages for wrongful termination.